Millcraft, McKnight to team up on Saks project

The city’s Urban Redevelopment Authority has settled on a developer to take on replacing the former Saks Fifth Avenue department store on Smithfield Street in downtown Pittsburgh with an ambitious new mixed-use project.

It's a partnership between two familiar firms that own key properties adjacent to empty store at the corner of Fifth Avenue.

Millcraft Industries Inc. will work with McKnight Realty Partners to establish a new development on the Saks site that is proposed to include around 450 subsurface and structured above-ground parking, 20,000 square feet of street level retail on Smithfield Street and Fifth Avenue, and 100 units of apartments.

Robert Rubinstein, acting executive director of the URA, said the board and the mayor’s office have opted for the McKnight/Millcraft proposal, one of three submitted to redevelop the Saks site. A final decision is expected to be ratified in a board vote at the URA’s regular meeting on Thursday afternoon.

“They both have a long track record of successful redevelopment and new development in Pittsburgh. They are both adjoining property owners to this suit,” said Rubinstein of McKnight and Millcraft. “Their proposal has really exceeded what our goals were.”

Pending its board vote, the URA will then enter into an exclusive negotiating period with McKnight/Millcraft of 90 days, with 60 extensions, to establish a sales agreement and a definitive project for the property. Currently, the URA has the Saks building under agreement for about $4 million.

The new project brings a Millcraft that’s been active in redeveloping a host of key properties in the Fifth and Forbes business district, including the Piatt Place nearby, and McKnight, which owns three established buildings in Smithfield Street, including the Henry Oliver Building, in which the company is working to redevelop the upper floors into a new hotel, which could use parking.

Rubinstein emphasized the project proposed so far is only a broad outline, subject to revision. He also emphasized that McKnight principal Bill Rudolph, a URA board member, has recused himself from all discussions of regarding the project and has notified both city council and the Pennsylvania Department of Community and Economic Development of his plan to pursue the project to under obligation to avoid conflict of interest.

Mutual interest over the site helped to bring the two companies together for the project, he added.

Parking is a key need in downtown Pittsburgh right now, and McKnight’s hotel project within the Oliver building has parking available.

Millcraft has been developing projects in and around Market Square as well as River Vue, its redevelopment of the state office building into a luxury apartment complex.

Rudolph sees the project amid a revitalizing of the surrounding Smithfield Street area, with PNC Financial Services Group Inc. (NYSE: PNC) turning the former Lord & Taylor building into offices and Philadelphia-based PMC Property Group Inc. working to redevelop both the former Regional Enterprise Tower and the James Reed building nearby into new apartment projects.

Rudolph credited Pittsburgh Mayor Luke Ravenstahl for pushing aggressively a plan to turn the closing of a luxury department store that had been Downtown for generations into a opportunity to build a new project.

“They were pushing this deal with Saks from the get-go,” said Rudolph. “I give them a lot of credit.”

Lucas Piatt, chief operating officer for Millcraft, described the logic of his firm partnering with McKnight, given their intersecting interests.

“With our ownership of Piatt Place and our other significant investment in that corridor, and with the location of the Oliver building, we thought it made sense to partner together,” he said. “We both want to promote what happening in the city and continue to move forward.”

Piatt sees no let up on demand for apartments downtown right now. With the modest number of units in Millcraft’s Market Square Place fully occupied, the company’s 218-unit River Vue project is now more than 68 percent leased and averaging five new leases a week with construction not to be fully completed until December, added Piatt.

He expects the project’s apartments will be market rate.

“There is more demand than supply and we feel there is room for more,” he said. “We see it as a strong development opportunity.”